Q1) MCQs of Chapter 13 (page 263)

1. Answer= $50, $10 (A)

Explanation= Accounting Profit is calculated by subtracting Total Revenue by Explicit
Opportunity Cost. So,
Accounting Profit = 60 - 10 = $50
Economic Profit is calculated by subtracting all opportunity costs (Explicit as well as
Implicit) from the total revenue. So,
Economic Profit = Total revenue - (Implicit + Explicit Costs)
= 60 - (40 + 10)
= 60 - 50
Economic Profit = $ 10

2. Answer: the production function gets flatter, while the total cost curve gets steeper
(D)
Explanation: As the input increases, the marginal product of the input decreases
because of additional workforce sharing accessible stuff. Thus, for each additional
workforce, the marginal product turns out to be less and the production function
becomes flatter connoting less additional marginal product for same increase in
workforce. Moreover, for large quantity outputs, the total-cost curve is relatively steep
since production of additional output requires additional workforce that is costly. The
gradient increases meaning higher total costs for same increase in workforce.

3. Answer: Marginal cost is $8, and average cost is $5 (D)

Explanation: The Marginal cost is $8 as there is an increase of 8 in the total revenue
when increasing a unit of production.
Marginal Cost = (Change in Total Cost)/(Change in Quantity)
MC = (5008-5000)/ (Δ1001-1000)
MC = $8
Average Cost = Total Cost/Total Quantity
Average Cost = 5000/1000
= $5

4. Answer: Average Total Cost Would Decrease (C)

Explanation: As the units are increased to 21, the average total cost decreases due to
the cost being divided over more units and the marginal cost is not the dominant force
yet.
 5. Answer: Average Total Cost and Average Fixed Cost (B)
Explanation: As License fee is a fixed and set amount that the government has forced; it
would be partitioned over the quantity of pizzas sold. The price isn't exposed to vary or
don't impact the cost of additional production nor does the additional or marginal
production causes the license fee to vary. Thus, the cost of $1000 will be divided over
the pizzas sold increasing the fixed cost and therefore average total cost.

6. Answer: economies, falling (A)

Explanation: When the workers become specialized in a specific task, the productivity
and efficiency increase so the average total cost falls in the longer run. This shows the
property of Economies of Scale (EOS). The total cost is being divided over the products
produced.

Q4) MCQs of Chapter 14 (Page 284)

1. Answer: takes its price as given by market conditions (C)
Explanation: A competitive market is a market with many buyers and sellers that are
trading similar products. Hence, any individual buyer or seller in the market have an
effect on the market price and every buyer and seller takes the market price as given by
the market conditions so each of the buyer is a price taker.

2. Answer: marginal cost equals the price (B)

Explanation: Profit maximizing quantity is found by comparing the marginal revenue
and the marginal cost of every item manufactured. If the marginal revenue is greater
than the marginal cost at any given price, the firm can increase production to increase
profit. The maximum profit is accomplished at the quantity that alludes to the
intersection of marginal cost curve and the market price, which is likewise equivalent to
average revenue or marginal revenue.

3. Answer: marginal, average variable (D)

Explanation: In the short run, a firm would shut down if the price is equal to or greater
than the average variable cost, then the firm would produce goods and services. If the
price is less than the average variable cost, then the firm would close the production.
Thus, the marginal cost curve above the average variable cost curve depicts the short
run supply curve of the firm.
4. Answer: keep producing in the short run but exit the market in the long run. (A)
Explanation: In the short run, if the firm is priced less than the average total cost and
greater than the average variable cost, then it recovers the full variable cost along with
the portion of fixed cost. This would minimize the cost of the firm in the production.
Since the firm is able to recover its fixed cost partially, it would run in the short run. But,
in the long run, the firm faces loss and will have to shut down.

5. Answer: P=MC and P=ATC (D)

Explanation: The profits are maximized by firms by opting for a quantity to produce
where the price equals marginal cost. (P = MC). Moreover, the free entry and exit trait in
the longer run causes price to be equal to the minimum of Average Total Cost (P = ATC).
So, P = MC = ATC

6. Answer: no change in the short run, down in the long run (C)
Explanation: The imposition of tax is considered as a fixed cost for the Pretzel stands in
the shorter run. However, in the longer run it is viewed as variable cost since these costs
rely upon time span. Therefore the marginal cost of production increases that makes the
production be decreased in the longer run.

Q2, Q3 AND Q5 ARE HANDWRITTEN (IN THE PDF FILE)

SUBMITTED BY: MAARIJ KHAN

ID: F19BBA14